Noonan plans to recoup bailout funds from ESM

The Government is working on a plan to recoup some of the money it ploughed into failing lenders from the euro area’s backstop fund, Finance Minister Michael Noonan has said.

Earlier this month, eurozone finance ministers agreed on the outlines of a plan for the €500bn European Stability Mechanism (ESM) to recapitalise lenders directly.

Retroactive application of this tool, as would be the case if Ireland applies, will be decided on a case-by-case basis.

“I would like to have the main ask designed on the Irish side in the autumn and my conversations with the principals” of the troika that oversees eurozone bailouts “well under way”, Mr Noonan said on RTÉ television.

Mr Noonan first helped persuade the ECB not to block a swap of so-called promissory notes used to rescue the now defunct Anglo Irish Bank, with €25bn of long-term government bonds held on the national central bank’s balance sheet.

The second part of his strategy involves accessing the ESM to refund as much as €30bn the State spent on saving other banks.

Winning retroactive recapitalisation would reduce Ireland’s debt to gross domestic product, due to peak at 123.3% this year, and add momentum as Mr Noonan heads back into bond markets.

“If we go there naively and put out our hand and say give us the money we won’t succeed,” he said.

“So, what I have just started to do now is to construct a piece of financial engineering, something analogous to what we did with the promissory note, so that what we will be looking for will uniquely apply to Ireland, that it would use the ESM in the full latitude of its provisions.”

Once the Irish plan is ready, Mr Noonan said he would seek the support of ECB president Mario Draghi, IMF managing director Christine Lagarde, and Olli Rehn, the EU’s economic commissioner.

“My argument would be that we need this piece to ensure that the debt is reduced, so that we never get dragged back again into a bailout,” said Mr Noonan.

Under rules adopted by eurozone finance chiefs in Luxembourg on Jun 20, direct recapitalisation of banks by the ESM would be capped at €60bn. The tool would become available once the ECB assumes “effective” supervision of the currency bloc’s banks.

Mr Noonan said that accessing the ESM would “get money where we could reduce the debt and ensure then that the signal is out into the markets that the Irish have done the job, they are positioned now with a debt that isn’t far off the European average.”